IMF 'Salvation' in Russia?

Fund bailout may fan flames of 'Great Depression,' not stop it

By
Bernard Sanders /
June 25, 1998

For the seven years since the fall of communism, the IMF has been guiding the Russian economy - to disaster. Now the IMF, with President Clinton's blessing, is considering a proposed $10 billion bailout for Russia. Should they be allowed to "save" Russia again?

As in Mexico, Indonesia, Korea, and Thailand, the IMF has prescribed that Russia run its economy for the benefit of foreign investors and a few wealthy Russians at the expense of the Russian people. The results are clear: a few world-class billionaires, combined with economic collapse, soaring debt, mass unemployment, grinding poverty, and unpaid wages and pensions.

When communism fell, the IMF prescribed "shock therapy," essentially a Russian translation of the devastating "structural adjustment" the Fund imposed on Mexico, Africa, Southeast Asia, and much of the rest of the third world. It insisted that Russia cut government spending, sell off public assets, and raise interest rates to attract foreign investment. But as early as 1992 it was clear that this was a road to disaster: Even the World Bank, normally an IMF ally, warned that Russia's first priority should be to revive domestic production.

The result of the IMF's shock therapy? Between 1992 and 1995, Russia's GDP fell 42 percent and industrial production fell 46 percent - far worse than the contraction of the US economy during the Great Depression.

The effect on the Russian people has been devastating. According to Russian officials, real income has plummeted 40 percent since the Soviet Union collapsed in 1991. A quarter of all Russians are living below the subsistence level. Nearly one-third live below the poverty level. Three-quarters barely survive on an average income of $100 per month. The Red Cross calls conditions in Russia "a silent disaster," reporting "We saw babies who were being fed powdered animal fodder because of lack of baby food." The average life expectancy for men has declined by seven years, to 59, since 1990. One- quarter of Russia's labor force receives its wages late, in kind, or not at all.

Meanwhile, privatization has concentrated wealth in a few hands. For example, privatization has created two energy companies, Gazprom and United Energy System, that are largely privately owned and together worth more than 30 percent of Russia's GNP.

What will more IMF remedies do to address the root causes of Russia's economic collapse? Will the proposed bailout help provide baby food for children or put people back to work? One doubts it. According to Jeffrey D. Sachs, director of the Harvard Institute for International Development and a former adviser to the Russian government, the reason for such new loans is to "insure that the earlier loans are repaid and that the ruble keeps its value long enough for speculators to get their money out without large losses." Indeed, interest rates that recently reached 150 percent will almost certainly be paid out of funds currently earmarked for retired pensioners and unpaid workers.

Russia desperately needs economic reform. The goal should be rebuilding the economy from the ground up, not bailing out foreign investors. We're told that the crises in Asia and now Russia threaten to spread to other countries and even to become a global economic meltdown. We are told that we must expand the funding of the IMF to combat this and future crises. But there is no evidence that IMF intervention does anything to prevent economic crisis in the long run. Instead, as Mr. Sachs points out, the IMF's track record indicates that it has become a veritable "Typhoid Mary," spreading economic austerity and collapse to one country after another.

If the threat of a spreading global economic collapse is real - and I fear that it is - the evidence of the past year indicates that current IMF policies are only helping spread the collapse. We'd better stop it.

But we need to do more than that. It's time to establish a moratorium on happy talk about the benefits of the global economy while we take a hard look at its problems and seriously debate what to do about them. After all, the future of the world economy may be at stake.